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Income-tax Officer (Exemptions) – II, Hyderabad Versus Kalinga Cultural Trust, Hyderabad

2015 (7) TMI 209 - ITAT HYDERABAD

Entitlement to exemption u/s 11 - AO formed an opinion that the activities of assessee society are not in accordance with the aims and objects of the society as assessee is predominantly engaged in construction of temple, which is not amongst its objects - Held that:- As held by the coordinate bench in assessee’s own case in the preceding AYs, assessee is pursuing charitable activity in accordance with its aims and objects while constructing the Jagannadha Temple. In fact, the AO himself in asse .....

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e u/s 11 of the Act. In our view, AO without examining the issue in proper perspective has abruptly concluded that assessee is not entitled to exemption u/s 11 of the Act only because proviso to section 2(15) was introduced w.e.f. 01/04/09. In our view, proviso to section 2(15) of the Act will not apply automatically to every trust or institution irrespective of the fact, whether the dominant object of the trust or institution is charitable purpose or earning profit. When in the present case ass .....

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hri V. Sivakumar ORDER Per Saktijit Dey, J. M. These two appeals by the department are against separate orders of ld. CIT(A), Hyderabad pertaining to AYs 2009-10 and 2010- 11. ITA No. 33/Hyd/2015 for AY 2009-10 2. Department has raised five grounds. Ground Nos. 1 & 5 being general in nature, do not require any specific adjudication. 3. In Ground Nos. 2 & 3, department has challenged the decision of ld. CIT(A) in upholding assessee s claim of exemption u/s 11 of the Act. Briefly the fact .....

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come after claiming exemption u/s 11 of the Act. During the assessment proceeding, it was noticed from information available on record by AO that assessee is constructing a Jagannadha Temple making huge investment and up to the end of PY 2008-09, it has invested an amount of ₹ 2,29,50,378. He further noticed that out of the total income of ₹ 1,54,72,028, for the year under consideration assessee trust has invested an amount of ₹ 76,67,283 in construction of the temple. AO obser .....

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he investment made in construction of Jagannadha Temple, other expenses of the society include pooja expenses, maintenance of hall and cultural programmes etc. whereas the main source of income of the trust is rental income, income from souvenir and donations. AO observed, the activities/programmes carried out during the FY revealed that the trust is engaged mainly in construction of temple of lord Jagannadh and letting out of kalyan mandapams. On the basis of aforesaid facts, AO formed an opini .....

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wined with the religious sentiments of the people. Both cannot be separated from each other. ii) In order to promote Odisha Culture among the residents of Hyderabad and Andhra Pradesh, for which the society was established, there was an immediate need to bring in a symbol of Odisha Culture to Hyderabad. The Jagannath Temple, which is a replica of the Lord Jagannath Temple of Puri, Orissa is a symbol of Odisha Culture. iii) The main aim of the assessee is not to promote religion but to promote Od .....

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and heritage. Hence, construction and maintenance of Jagannadha Temple is inseparable from odisha culture and heritage. AO, however, was not convinced with the explanation of assessee. He opined that construction of Jagannadha Temple not being in consonance with the aims and objects of the society cannot be considered as charitable activity. Further, he observed that assessee is also having income from letting out of function hall, sale of souvenir etc, which are purely commercial activity, ther .....

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fore ld. CIT(A), it was submitted by assessee that construction of Jagannadha Temple being a part of odisha culture cannot be construed to be an activity different from its aims and objects. Assessee strongly contesting the finding of AO that construction of temple is not charitable activity, relied upon a decision of the Hon ble AP High Court in case of CIT Vs. Social Services Centre, 250 ITR 39 wherein construction of church was held to be a charitable activity. It was submitted by assessee th .....

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. As far as allegation of AO that assessee is earning from commercial activity, it was submitted by assessee that maintenance and letting out of function hall, sale of souvenir etc are ancillary and incidental to the main objects of assessee, hence, cannot be considered to be commercial activities. He submitted that receipts from such activities is utilized for construction of temple, which is a charitable activity. 5. Ld. CIT(A) after considering the submissions of assessee in the context of fa .....

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ll etc. However, it was observed by ld. CIT(A) that in view of the principle laid down by Hon ble AP High Court in case of CIT Vs. Social Services Centre (supra) and the decision of ITAT in assessee s own case, the activity of assessee in constructing a temple falls under charitable activity. Accordingly, she held that exemption u/s 11 cannot be denied to assessee. She observed, even after amendment to section 2(15) w.e.f. 01/04/09, the primary purpose of renting out hall being for raising funds .....

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shed for charitable purpose, hence, no exemption u/s 11 can be allowed. 7. Ld. AR, on the other hand, apart from making oral submissions filed a detailed and exhaustive written submission, the sum and substance of which is assessee being involved in charitable activity, exemption cannot be denied to it merely because some income is generated to assessee from letting out of function hall or sale of souvenir. It was submitted that such activity of letting out function hall or sale of souvenir bein .....

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tled in favour of assessee. He, therefore, submitted that there is no justifiable reason to interfere with the order of ld. CIT(A). As far as souvenir sale is concerned, ld. AR submitted, souvenir sale cannot be considered to be of commercial nature as it is an act of voluntary contribution by persons, who buy souvenir. 8. We have considered the submissions of the parties and perused the material on record as well as the orders of revenue authorities. As could be seen from the assessment order, .....

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ction of temple by assessee is neither in accordance with aims and objects of assessee nor charitable activity is concerned, it has to be rejected at the threshold in view of the decision of the coordinate bench in assssee s own case in AYs 2006- 07, 2007-08 and 2008-09 in ITA Nos. 894 & 895/Hyd/13 and 1067/Hyd/12, dated 06/06/14 wherein the coordinate bench agreed with the ld. CIT(A) that construction of Jagannadha Temple is not only in furtherance of the aims and objects of assessee societ .....

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we are of the view that the same requires deeper analysis. However, before deciding the issue, it is necessary to observe that there cannot be any dispute to the fact that assessee s objects are charitable in nature, as ld. DIT(E) has granted registration to assessee u/s 12A of the Act since the year 1995 and which is continue till date. 8.1. Further, there is nothing on record to suggest that in the intervening period there is any substantial change in the aims and objects of assessee. Therefo .....

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ny other object of general public utility . The intention of the legislature in introducing the proviso to section 2(15) as could be gathered from the speech of the Hon ble Finance Minister on the floor of Parliament, explanatory notes, departmental circulars, is to deny exemption to trusts or institutions who in the garb of charity are purely engaged in commercial or business activities and whose main intention is to earn profit. The proviso is never meant to deprive genuine trusts and institut .....

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ing in mind the dominant object/purpose of the trusts or institutions. Therefore, it has to be seen whether the dominant object of the trust is of charitable nature in carrying out the object of general public utility or main intention of the assessee is to earn profit. Further, definition of charitable purpose as defined u/s 2(15) of the Act cannot be read in vacuum, but, has to be read along with the exemption provisions. That being the case, a literal interpretation to the proviso to section .....

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stablished for charitable purposes. The fact that it derives income does not in any way detract from the position that it is not an institution established for charitable purposes. The Hon ble High Court observed that merely because assessee derives rental income, income out of sale of tickets and sale of publications and income out of leasing out food and beverages outlets in the exhibition grounds does not, in any way, affect the nature of trust as a charitable institution, if, it otherwise qu .....

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undant. The Hon ble Delih high Court referred to its own decision in case of Institute of Chartered Accountants of India and another Vs. Director General of Income-tax (E), 358 ITR 91 wherein while interpreting expressions trade, commerce and business , as find place in the first proviso to section 2(15), the court held that merely because fees or some other consideration is collected or received by an institution, it would not lose its character of having been established for charitable purpose .....

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t laying down the principle as to how the proviso to section 2(15) should be construed, held as under: 58. In conclusion, we may say that the expression II charitable purpose", as defined in section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to section 2(15) of the said Act then the proviso would be at risk .....

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general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and the prime objective of .....

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ement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. 8.2 If we apply the aforesaid principles to the facts of the present case, it is to be seen that as held by the coordinate bench in assessee s own case in the preceding AYs, assessee is pursuing charitable activity in accordance with its aims and objects while constructing the Jagannadha Temple. In fact, the AO himself in assessment order has admitted that income/fund of .....

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